Moshe Orenbuch: Great. Thanks. Jack, you mentioned that and congratulations that the consolidation levels have kind of moved down. Could you talk a little bit about what we’re likely to see from the federal programs or what we could see various scenarios over the next couple of months and which of them would allow that to continue, which of them might cause it or anything that might cause it to change?
Jack Remondi: Sure. A crystal ball and predicting legal resolution and then congressional and administrative actions, a pretty good crystal ball. I’m not trying to . But look, I think the environment here has been one where the focus I think right now from this administration has been on the direct loan portfolio and the forgiveness programs that they’re looking to launch there. Our portfolio is more seasoned. They’re in repayments. They’re pretty well established at this point in time. I think we’re super proud of the fact that we were able to work with our customers and return them, successfully return, help them return to repayment with lower delinquency rates and default rates than we saw pre-pandemic levels. When the administration offered up some additional one-time programs particularly on public student loan forgiveness, we did see a higher increase in consolidation activity that has effectively stopped, right?
And as I said, their consolidation activity is now below historical levels. And so that’s really been the positive for us. Our job in one of our key priorities is to really just maximize the performance of that portfolio. That means working with customers to keep them in repayment, successfully pay off their loans and inform them of different options as they become available. But I think it’s a little hard to know exactly what happens next pending the Supreme Court decision.
Moshe Orenbuch: Fair enough. Joe, on the margins both FFELP and Private, two kind of separate questions. I guess on the – there was a kind of a higher level of derivatives activity. I guess you probably, could you talk a little bit about how that impacted Q1 in any go forward impacts? And on the private side, you mentioned, kind of better funding spreads, but the most recent securitization deal, kind of showed that those margins have been declining pretty sharply. I mean, the cost of borrowing there is roughly equal to the yields on the loans. Could you just talk about those two things?
Joe Fisher: Yes. So, certainly from the hedging activity perspective, what you don’t see in our recent securitization is the benefit we get from hedging against those interest rates, which would bolster the performance of that individual securitization by about 100, just under 140 basis points. So that’s something that you don’t get to see from in the reporting, that’s external. So, you have to take into account that benefit. As it relates to the FFELP and private and in going forward, certainly it’s been a fairly volatile environment the last several quarters and we’ve been consistent in our range and showing higher performance there. It’s just one quarters of results, so feel very confident that we’ll be in that 100 basis point to 110 basis point range as it relates to our first quarter’s performance.
So, we’re just not in a position on both FFELP and private where we’re going to raise that guidance and certainly feels very good about meeting and potentially exceeding on the private side. For the private NIM, again, to your point about just the funding spreads, we continue to see that improve year-over-year, as well as just from the prior quarter. So, we’re very well-positioned to meet and potentially exceed, but it’s just one quarter in a fairly fluid rate environment of which our latest forward curve would suggest two rate cuts in the back half of the year. So, those are things that we’re taking into consideration as we didn’t update our guidance for this quarter.
Moshe Orenbuch: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open.
Unidentified Analyst: Hi. This is actually filling in for Sanjay. Thanks for taking my question. I guess just a follow-up around the NIM question. Just, like what would need to happen in order to get to the high versus the low-end of the guidance? How much sensitivity is there on prepayment speeds and other factors? Thanks.
Joe Fisher: Yes. So, I think where – in terms of the prepayment speeds, I think you’re seeing the benefit from this to slow down on both the – on both the private and the federal side. So, I would say the reverse would be something we’re to occur where there’s an increase in prepayment speeds where that could impact negatively the NIM. We’re not assuming that occurs. It’s based off of the activity we’re seeing in our current forecast for this year’s interest rate environment. Other things that would potentially improve our outlook here would just be improved funding just reference the ABS market, you’re seeing higher credit spreads than normal. So, any improvement there could be a benefit to us as we look to issue in the ABS market or potentially issue unsecured debt if it was found to come down at attractive levels.
Unidentified Analyst: Got it. Got it. And then just a clarification around what’s the ongoing impact from the TDR allowance change?
Joe Fisher: So, for the remainder of the year, sorry, for the next two years, there’s $25 million of allowance remaining and although we are estimating as little more than half of that will come through in provision release for the next nine months.
Unidentified Analyst: And is there anything on the P&L side or is it just on the allowance side?
Joe Fisher: Well, that’s the impact from the accounting change. It’s just on the provision side.
Unidentified Analyst: Understood. Great. Thanks for taking my questions.
Operator: Thank you. Our next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.
Bill Ryan: Good morning. Thanks for taking my questions. First question, I know you guys always are focused on efficiency. And looking at the FFELP, federal loan segment, you had a nice drop in expenses. Could you maybe talk about what drove the reduction expenses and is the $20 million roughly a run rate we should be thinking about going forward?
Jack Remondi: So I mean, there’s a couple of things, Bill, that go into that. I mean, certainly, as we’ve been winding down some of the fee revenue contracts we were able to reduce the expenses associated with those. Those were all planned activities. But in the loan servicing side of the equation, the big drivers for us are automation in different techniques that we use to identify what a customer needs and that will be able to respond to that in some form of highly efficient way. So, examples we have over 85% of our customers communicating us with us electronically on a monthly basis, that’s a way to reduce postage and print expense. The other thing that we benefit from is, as delinquency rates come down, delinquent accounts are our most expensive cost to service.
And so, we get a little bit of relief as we see improvements on that side of the equation as well. And then the last piece I would just mention is, consolidation activity. So, when consolidation activity is happening, we incur transaction costs associated with that. So that volume has come down. We benefit from it as well.
Bill Ryan: Okay. And just one follow-up, just kind of going to a high level and thinking about into the future. What do you see as your market share potential in the in-school channel over call it a long period of time?
Jack Remondi: Well, our aspirations right now is, we want to be a top 3 lender in the in-school origination side of the equation and we don’t see any reason why we can’t get there.
Bill Ryan: Okay, thanks for taking my questions.
Operator: Thank you. Our next question comes from Giuliano Bologna with Compass Point. Your line is now open.
Giuliano Bologna: Good morning and thanks for taking my questions. One thing I’d be curious about is and you may have touched on it during the call already is, the potential for, kind of a recovery in refinance volumes and specifically what I’m curious about is, kind of the roles of profitability, I mean by that some upfront provisions, but those have relatively low seasonal charges. So, curious in a sense, when you start originating a new vintage or ramping up, does it become kind of profitable on an EPS basis within the two quarters or three quarters or thinking about that timeline.
Jack Remondi : Sure. So, I mean, the demand here is really a function of borrowers who have been in repayment, successfully been in repayment and their ability to obtain a lower rate. So, as interest rates have been rising, new federal originations have been – and private loans are being originated at higher interest rates. When we get to a more stable interest rate environment, we can start to see demand returning in that side of the equation. And if we start see a falling rate environment, which is, kind of what’s forecasted for later in 2023, you can start to see an acceleration of demand in that space. In terms of profitability, when you originate a loan whether it’s a refi loan or consumer loan, CECL accounting requires you to book 100% of the provision that you expect for our life of loan losses day one. So that hurts profitability in that particular period. And then subsequent quarters are generally profitable from a going forward perspective.
